China is a big importer of US toys, but Mattel has a plan to deal with it.
Toys have been a key focus of the tariff debate as the industry, which imports a lot of toys from China, is subject to higher tariffs.
The prospect of higher tariffs on toys prompted the viral quote from President Donald Trump over the weekend when he said on Meet the Press, “I’m just saying [Americans] don’t need to have 30 dolls, they can have three,” moderator Kristen Welker.
On Monday, one of the nation’s largest toy companies, Mattel (NASDAQ: MAT), reported surprisingly good earnings, led, in part, by higher sales of dolls.
Mattel saw net sales rise 2% in the quarter to $827 million, which sailed past estimates of $786 million. Meanwhile, gross profit was up 5% to $408 million on lower cost of sales.
Doll sales were up 1% to $297 million, led by Disney Princess and Wicked dolls, while toy car sales, including Hot Wheels, were up 4% to $308 million. Also, action figures, games, building sets and other revenue jumped 12% to $193 million. Baby and toddler sales were down 6%.
However, 11% higher selling, general and administrative expenses caused the company to post a net loss of $40 million, or -12 cents per share in the quarter. But the adjusted earnings of -3 cents per share, up year-over-year from -5 cents per share, and it topped analysts’ estimates of 9 cents per share.
The earnings beat and revenue increase sent Mattel stock rising about 3% on Tuesday to around $16.60 per share. Investors were buying low, as the stock is trading at just 10 times earnings, but the outlook is a bit murky due to tariffs.
No guidance due to tariff uncertainty
Mattel officials did not offer guidance for the rest of the year.
“Given the volatile macro-economic environment and evolving U.S. tariff landscape, it is difficult to predict consumer spending and Mattel’s U.S. sales in the remainder of the year and holiday season,” officials said in the earnings report.
While tariffs did not impact first quarter sales, they are poised to have an impact this quarter and beyond, as 40% of its toys comes from China. While that sounds like a lot, it is about half the average of the toy industry, as most companies get 80% of global toy production from China.
Also, noted Mattel chairman and CEO Ynon Kreiz, its imports from China into the U.S. are only about 20%.
“While China continues to be an important sourcing country for us on a global basis, we have been accelerating plans to further reduce reliance on China sourced product as part of our diversification strategy,” Kreiz said.
Steps to offset tariff impact
Kreiz said the company is taking mitigating actions designed to “fully offset” the potential incremental cost impact of tariffs.
Among them, Mattel is accelerating diversification of its supply chain and further reducing reliance on China-sourced product. On the earnings call, Kreiz said the company is relocating the production of 500 toys from China to other countries this year. By 2026, it expects to import 15% into the U.S. from China, and 10% by 2027.
In addition, where necessary, the company is taking pricing action in its U.S. business. That basically means that there will probably be some price increases — and according to a CNN report, there already are.
“Under the current scenarios we are considering, we expect that 40% to 50% of our product will be priced at $20 or less,” Kreiz said. “The breadth of our portfolio, innovative products, diversified and flexible supply chain and global commercial organization are clear advantages for Mattel in this period of uncertainty.”
It is also optimizing its product sourcing and product mix. Further, Mattel intends to rebalance promotional activity to drive cost efficiencies and accelerate cost savings actions. Toward that end, it is increasing the 2025 savings target to $80 million from $60 million.
The company also echoed the call of the U.S. Toy Association for zero tariffs on toys.
“While we do call for the for zero tariffs on toys, we support the toy association call for zero tariffs on toys because we believe it should be affordable and reachable for as many people as possible given the toys are such an important part of children’s lives,” Kreiz said.
The clear plan for dealing with the tariffs, the low valuation, and the relatively limited exposure to China make Mattel a stock to watch.